Consumer Confidence Rebound Fails to Give Australian Dollar to US Dollar (AUD/USD) Rate Boost

Australian Dollar US Dollar (AUD/USD) Exchange Rate Struggles to Benefit From Improved Consumer Confidence

A modest rebound in October’s Westpac consumer confidence index offered limited support to the Australian Dollar (AUD), with the improvement failing to reverse the previous month’s slump.

Confidence in the underlying health of the Australian economy remains limited in the face of persistent global trade tensions and the International Monetary Fund’s (IMF) downgraded growth forecasts.

With investor risk appetite muted the potential for AUD exchange rate strength has proved lacking, keeping the antipodean currency in the region of recent multi-year lows.

As markets maintain a generally bearish view of the Australian Dollar the AUD/USD exchange rate looks set to remain on a weaker footing for some time to come.

Underwhelming Producer Price Index Data Limits US Dollar (USD) Upside

Demand for the US Dollar (USD) softened this afternoon, however, as September’s US producer price index data proved mixed in nature.

An unexpected decline in the headline annual PPI reading dented the appeal of the US Dollar, suggesting that domestic inflationary pressure is starting to ease.

After Dallas Fed President Robert Kaplan called for a more patient and gradual pace of interest rate hikes the strength of USD exchange rates has been limited.

While investors still expect the Federal Reserve to raise interest rates one more time before the end of the year this more cautious tone helped to put a floor under the AUD/USD exchange rate.

If other Fed policymakers adopt a similarly cautious outlook this week the US Dollar may cede further ground to its rivals.

Volatility Forecast for AUD/USD Exchange Rate with US Inflation Data

Tomorrow’s US consumer price index may see the AUD/USD exchange rate trending lower, though, if inflation shows signs of picking up.

Although the CPI is not the Fed’s preferred measure of inflationary pressure a strong showing here could still give the Federal Open Market Committee (FOMC) further incentive to raise interest rates.

On the other hand, an easing in price pressures may help to diminish demand for the US Dollar in the near term.

Any increase in US jobless claims on the week could also provoke volatility for the AUD/USD exchange rate, with signs of a loosening within the labour market likely to discourage investors.

As long as market risk aversion remains elevated, however, the US Dollar is set to benefit from safe-haven demand.

Australian Dollar (AUD) Potential Limited on Steady Consumer Inflation Expectations

No change is forecast for October’s Australian consumer inflation expectations survey, limiting the potential for an Australian Dollar rally.

Unless expectations increase the case for Reserve Bank of Australia (RBA) policy action will remain limited, given the underwhelming nature of other recent data and the weaker economic outlook.

With the RBA looking set to leave interest rates on hold until well into 2019 the Australian Dollar could struggle to find support, especially as the odds of a Fed interest rate hike increase.

A contraction in Friday’s home loans figure may also leave the AUD/USD exchange rate biased to the downside, short of a general resurgence in risk appetite.

Hannah Wilson

Contact Hannah Wilson